CORPORATE FINANCE (LL)-W/ACCESS
11th Edition
ISBN: 9781259976360
Author: Ross
Publisher: MCG
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Textbook Question
Chapter 15, Problem 6CQ
Call Provisions A company is contemplating a long-term bond issue. It is debating whether to include a call provision. What are the benefits to the company from including a call provision? What arc the costs? How do these answers change for a put provision?
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Students have asked these similar questions
Which of the following is the best explanation of what the call premium is?
Group of answer choices
The amount above the face value an investor must pay to purchase the bond.
The additional amount above the face value that the company must pay to repay the bond early.
The additional amount above the market price that a company must pay to repay the bond early.
The amount above the market price that an investor must pay to purchase the bond.
The time value of money is used in calculating bond prices because:
Group of answer choices
A - The company might choose to repay the bonds prior to their maturity date
B - Bond investors receive future payments and purchase bonds with current dollars
C - The amount to be repaid at maturity will change as market rates change
D - Cash interest payments to bondholders will change as market rates change
Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a higher return with borrowed funds than it pays in interest.
Chapter 15 Solutions
CORPORATE FINANCE (LL)-W/ACCESS
Ch. 15 - Bond Features What are the main features of a...Ch. 15 - Prob. 2CQCh. 15 - Preferred Stock Preferred stock doesnt offer a...Ch. 15 - Preferred Stock and Bond Yields The yields on...Ch. 15 - Prob. 5CQCh. 15 - Call Provisions A company is contemplating a...Ch. 15 - Prob. 7CQCh. 15 - Preferred Stock Do you think preferred stock is...Ch. 15 - Long-Term Financing As was mentioned in the...Ch. 15 - Internal versus External Financing What is the...
Ch. 15 - Prob. 11CQCh. 15 - Classes of Stock Several publicly traded companies...Ch. 15 - Callable Bonds Do you agree or disagree with the...Ch. 15 - Bond Prices If interest rates fall, will the price...Ch. 15 - Sinking Funds Sinking funds have both positive and...Ch. 15 - Prob. 1QPCh. 15 - Prob. 2QPCh. 15 - Prob. 3QPCh. 15 - Prob. 4QPCh. 15 - Financial Leverage Kiedis, Corp., has...Ch. 15 - Financial Leverage Frusciante, Inc., has 290,000...Ch. 15 - Financial Leverage Harrison, Inc., has the...Ch. 15 - Valuing Callable Bonds KJC, Inc., plans to issue 5...Ch. 15 - Valuing Callable Bonds New Business Ventures,...Ch. 15 - Valuing Callable Bonds Bowdeen Manufacturing...Ch. 15 - Prob. 11QPCh. 15 - Prob. 12QP
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What is a call provision? Why do companies often include call provisions on bond issues?arrow_forwardWhat causes a gain or loss on the sale of a bond investment? Group of answer choices when the selling company negotiates a better price when the selling price of the bond differs from the book value (cost) of the bond when the selling company has unamortized discounts when the selling company has unamortized premiumsarrow_forwardProtective covenants protect: Group of answer choices A. the investor from interest rate risk. B. the company in case of default. C. bond investors from adverse actions by the company. D. bond investors whose bonds are called by the company.arrow_forward
- Explain why a company might issue convertible securities instead of straightforward debt or equity. Also, explain how convertibility affects expected return on investment.arrow_forwardHow is the appropriate cost of debt for a new project determined when a company has several bond issues outstanding with varying maturities?arrow_forwardIdentify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a lower return with borrowed funds than it pays in interest.arrow_forward
- Analysts have suggested the management of a company to follow different annuity and perpetuity concepts while issuing and evaluating their bonds so that best options would be chosen while issuing new securities. Therefore there is also need to explain these concepts before Board of Directors to get in depth understanding of calculation of intrinsic value of securities by using different types of annuities as well as perpetuity plans. Q) Explain different types of Annuity and perpetuity concept with appropriate examples.arrow_forwardSelect all that are true with respect to the cost of debt. Group of answer choices it is the return the firm needs to earn overall to satisfy all investors It is the rate the debt holders demand given the risk they face as debt holders Can be estimated using CAPM Cannot be estimated using CAPM because CAPM is used for estimating the cost of equity Is always equal to the YTM on a company's existing bonds Is lower than the YTM on a company's existing debt if there is default risk Can be proxied by the YTM on a company's existing debt if the debt is risk free Flag question: Question 7arrow_forwardReffering to the below sheet 1) What is the current portion of long-term liabilities and for what type of liabilities? 2) How company is taking tax advantage of Bonds Payable (or any other fixed cost financing)?arrow_forward
- Discuss the effect if a company’s bond is downgraded.arrow_forwardDiscuss the functioning and merits of callable and puttable bonds from an investor’s perspective. Discuss how the price of a puttable bond will differ from the price of a similar, plain vanilla bond and the main determinants of this price difference. In which market environment does the issuance of a callable bond make more sense from a corporate issuer’s perspective?arrow_forwardDebt Securities - These securities are in the form of debt or borrowings which have to be repaid by the issuer to the holder of the securities. The issuers of debt securities have to pay interest in the form of coupons at a rate of interest. Debt securities are a means of diversification and provide a predictable income stream to the holders. You mention "coupons" in you debt instrument discussion. Can you tell us more about these coupons? How do they work, where do we find them? Are they registered?arrow_forward
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